SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter comes before the Administrative Law Court on appeal from the decision of the South Carolina Board of Pharmacy (the “Board”) of the Department of Labor, Licensing & Regulation (“LLR”) to discipline H. D. Smith Wholesale Drug Company (hereinafter “H. D. Smith” or the “Appellant”) by Order dated January 17, 2008. H. D. Smith argues that the Board abused its discretion by issuing discipline in Order of January 17, 2008. Upon review of this matter, this Court finds that Board abused its discretion by issuing discipline in its Order of January 17, 2008, and that the ruling of the Board must be reversed with instructions as set forth below.

BACKGROUND

H. D. Smith is permitted to operate in South Carolina as a non-resident wholesale drug distributor. S.C. Code Ann. §§ 40-43-30(52), 40-43-89. A wholesale drug distributor is, by definition, engaged in purchasing prescription drugs from authorized drug manufacturers and distributing such drugs to entities or persons authorized to administer or dispense prescription drugs, such as hospitals and pharmacies. S.C. Code Ann. §§ 40-43-89, 40-43-30(15), 40-43-30(52). A wholesale distributor must obtain a separate permit for each distribution facility that ships drugs into South Carolina. S.C. Code Ann. § 40-43-90(B). At all relevant times, H. D. Smith had South Carolina permits to ship from distribution facilities in the following locations: (1) Wood Dale, Illinois, (2) Louisville, Kentucky, and (3) Kearny, New Jersey.

On June 29, 2007, H. D. Smith submitted an application to the Board to obtain a permit for its facility located in Kearny, New Jersey. H. D. Smith submitted an application for the New Jersey facility as required by South Carolina law, because H. D. Smith’s New Jersey facility changed location from one city to another. S.C. Code Ann. § 40-43-90(E)(3). On its application for the New Jersey permit, H. D. Smith disclosed that it had been disciplined on or about June 1, 2007, by the Illinois Department of Financial and Professional Regulation for purchasing product from a supplier not licensed in that state.[1]

On November 14, 2007, the Board considered H. D. Smith’s application for the New Jersey facility. At that hearing, LLR presented evidence to the Board concerning H. D. Smith’s discipline in Illinois. Discipline from another state is evidence of a violation of S.C. Code Ann. § 40-43-140(A)(4)(a), which provides that it is unlawful for a wholesale distributor to act in “violation of any federal, state, or local law relating to the practice of pharmacy, drug samples, wholesale or retail drug or device distribution…” Counsel for H. D. Smith appeared at the hearing, as well as an H. D. Smith employee and representative, Ms. P. J. Little, who provided testimony during the hearing.

After considering the fact that H. D. Smith had been disciplined by the Illinois Department of Financial and Professional Regulation, the Board issued an Order granting the application for H. D. Smith’s permit to operate its facility in Kearny, New Jersey as a non-resident wholesale distributor in South Carolina. The Board also included this following letter of caution in its Order:

Based upon the record before it, certain cautions to Applicant are appropriate to the granting of this permit. Applicant is hereby cautioned that it must establish, maintain and adhere to written policies and procedures which fully comply with the requirement of S.C. law. See particularly, S.C. Code Ann. § 40-43-89(I), giving special attention to records of the pedigree of the drugs and to procedures for preventing and correcting inaccuracies in inventories. Applicant is also cautioned that the Board of Pharmacy of the State of South Carolina considers the standards established by the National Association of Boards of Pharmacy for its Verified-Accredited Wholesale Distributor credential to be the appropriate professional standards for permittees of the Board.

(emphasis added). S.C. Code Ann. § 40-1-120(D) states that, “[u]pon a determination by a board that discipline is not appropriate, the board may issue a nondisciplinary letter of caution.” In this instance, the Board issued such a caution to H. D. Smith in its Order.

On December 12, 2007, less than one month after the Board granted H. D. Smith’s application with a letter of caution, the Board served two (2) new formal complaints against H. D. Smith’s two other facilities permitted in South Carolina. One of the complaints was issued regarding H. D. Smith’s facility in Wood Dale, Illinois (License PY 5560). The other complaint was issued regarding H. D. Smith’s facility in Louisville, Kentucky (License PY 9525). The sole issue in each of the formal complaints concerned the discipline issued to H. D. Smith by the Illinois Department of Financial and Professional Regulation on or about June 1, 2007. This was the same issue the Board considered approximately one month before at its November 14, 2007 meeting.

The Board held its hearing on the formal complaints on January 17, 2008. At the hearing, Mr. Patrick D. Hanks, Esq., appeared as counsel for LLR. Mr. Hanks noted for the record that, at the Board’s meeting on November 14, 2007, the Board had already considered H. D. Smith’s discipline in Illinois. While Mr. Hanks argued that the Board could review the permits, he also stated as follows:

They submitted an application incident to that new location and had to check a yes answer. That yes answer, of course, related back to this situation here, the Illinois situation, and where they paid the $75,000. At the conclusion of the application hearing, I have to admit that you all decided to issue a letter of caution and then go ahead and issue the permit and with that you also have to understand that that was the New Jersey facility and that was an application, but it was related to the same conduct.

At the January 17, 2008 hearing, counsel for H. D. Smith reminded the Board that it had already considered the fact that H. D. Smith had been disciplined by Illinois when it reviewed H. D. Smith’s application for the New Jersey facility in November of 2007. The Board’s November 14, 2007 Order was admitted into the record. Additionally, counsel for H. D. Smith emphasized that there was no new evidence in the record at the hearing on January 17, 2008 for the Board to consider.

Nevertheless, the Board issued an Order dated January 17, 2008, disciplining H. D. Smith for the same conduct that had earlier only merited a letter of caution. The Board ordered that, for the same conduct the Board considered in November 2007, H. D. Smith would pay a fine of five hundred dollars ($500.00) for each license – PY 5560 and PY 9525 – within ninety (90) days of the effective date of the Order. Further, the Order mandated the following:

The [Appellant] shall maintain documentation of the point of origin and chain of custody of any shipment or distribution of drugs in the State of South Carolina. Further, [Appellant] shall also be responsible for verifying that any drugs shipped or distributed in the State of South Carolina are from a Verified Accredited Wholesale Distributor (VAWD).

Thereafter, H.D. Smith timely appealed the Board’s ruling of January 17, 2008 to this Court.

ISSUE PRESENTED

Did the Board abuse its discretion by issuing discipline to H. D. Smith’s facility in Wood Dale, Illinois (License PY 5560), and its facility in Louisville, Kentucky (License PY 9525) in its Order of January 17, 2008?

STANDARD OF REVIEW

This case is before the Administrative Law Court (ALC or Court) pursuant to S.C. Code Ann. § 1-23-600(D) (Supp. 2007) and S.C. Code Ann. § 40-1-160 (2001) upon an appeal from a final decision of a licensing board or commission. As such, the Administrative Law Judge sits in an appellate capacity under the Administrative Procedures Act (APA) rather than as an independent finder of fact. In South Carolina, the provisions of the APA – specifically S.C. Code Ann. §1-23-380(5) (as amended by 2008 S.C. Act No. 334) – govern the circumstances in which an appellate body may reverse or modify an agency decision. That section sets forth:

The court may not substitute its judgment for the judgment of the agency as to the weight of the evidence on questions of fact. The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision [of the agency] if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

(a) in violation of constitutional or statutory provisions;

(b) in excess of the statutory authority of the agency;

(c) made upon unlawful procedure;

(d) affected by other error of law;

(e) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or

(f) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

S.C. Code Ann. § 1-23-380(5) (Supp. 2007).

The APA provides, in pertinent part, that the Administrative Law Court may reverse or modify an agency’s decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are “arbitrary and capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.” S.C. Code Ann. § 1-23-380(5)(f). An administrative decision is defined as arbitrary “if it is without a rational basis, is based alone on one’s will and not upon any course of reasoning and exercise of judgment, is made at pleasure, without adequate determining principles, or is governed by no fixed rules or standards.” Deese v. State Bd. of Dentistry, 286 S.C. 182, 184-85, 332 S.E.2d 539, 541 (Ct. App. 1985). An abuse of discretion occurs when a decision is controlled by an error of law or is without evidentiary support. Mictronics v. S.C. Dept. of Revenue, 345 S.C. 506, 510, 548 S.E.2d 223, 225 (Ct. App. 2001).

DISCUSSION

In the instant case, the Board considered the same facts at both hearings, yet during the second hearing, the Board issued a different ruling to the same party on the same set of facts. The Board’s decision to issue discipline to H. D. Smith in its Order of January 17, 2008 was arbitrary and capricious, because the same Board had earlier decided, based on the same set of facts, to issue a nondisciplinary letter of caution to H. D. Smith. Furthermore, the Board’s decision was controlled by an error of law. The Board mistakenly relied only on evidence in its Order of January 17, 2008 that it had already considered in its Order of November 14, 2007. The Board relied on no other evidence in reaching its Order of January 17, 2008, yet it came to a different result. Instead of issuing a letter of caution, it increased the sanction in the later Order to a fine and satisfaction of other conditions. As such, the Board abused its discretion in issuing its Order of January 17, 2008.

To further clarify, this Court believes that the Board has the right to apply different sanctions to different permits held by the same entity so long as a cogent reason for so doing is properly presented. However, in this case, no such reason has been presented. Therefore, to the extent the sanctions applied to the H. D. Smith facilities in Illinois and Kentucky were different from the sanction applied to the New Jersey facility – the letter of caution – such an act was an abuse of the Board’s discretion and must be reversed.

ORDER

For the foregoing reasons, it is ORDERED that the Order of January 17, 2008 issued to H. D. Smith’s facility in Wood Dale, Illinois (License PY 5560), and its facility in Louisville, Kentucky (License PY 9525) by the South Carolina Board of Pharmacy of the Department of Labor, Licensing & Regulation is REVERSED. It is further ORDERED that issue be remanded to the South Carolina Board of Pharmacy, with instructions that any action of the Board on this matter with regard to H. D. Smith’s facility in Wood Dale, Illinois (License PY 5560), and its facility in Louisville, Kentucky (License PY 9525), be limited to a “letter of caution” in the same manner as the caution given to H. D. Smith’s facility in Kearny, New Jersey by Order dated November 14, 2007.

IT IS SO ORDERED.